Friday, December 24, 2004

Article in "Market Leader"

The story of Shell- how a great brand fell from grace
(Unedited version)

Reproduced with permission of Market Leader, the strategic marketing journal for business leaders. To subscribe visit © Copyright WARC and The Marketing Society.”

In his seminal book on brand and design “Corporate Identity” (published in 1989) Wally Olins describes three different forms of corporate structure:; the “endorsed”, in which the corporation has a group of activities and companies which it endorses with the group name and identity (e.g. General Motors) ; the “branded” where a company operates through a series of brands which may be unrelated to each other or to the corporation (e.g. Unilever) and the “monolithic”, in which a corporation uses one name and visual identity throughout . For his example of a “monolithic” structure Olins chose Shell. “More than 90 percent of Shell’s business throughout the world bears the Shell name” he wrote, “…the reputation of Shell is symbolised to a quite extraordinary extent by its name and visual imagery”. Research around this time showed not only that Shell was highly respected but also that the Shell logo was the most recognised commercial symbol in the world. Shell was the brand leader in the oil industry and also, by some measures, the largest business of all types in the world in the Fortune 500 lists. Heady days indeed! Where did it all go wrong?

In the late 1980s I was working for Shell in Hong Kong, and increasingly in China, where we were making every effort to maximise the benefits of the unique strength of the Shell identity that Wally Olins had so accurately described. By striving to offer the highest levels of customer satisfaction in all of our many consumer businesses we were also consciously trying to ensure that the corporate reputation of Shell was enhanced and valued. When senior Shell executives visited the Territory for discussions on a multitude of large scale China investment projects their task was hugely aided by the fact that the Shell brand was already known and respected in Hong Kong. Around the world there were well over one hundred similar country-based Shell companies pursuing a similar strategy.

The norm in the oil industry is vertical integration - an oil company manages the full hydrocarbon stream from exploration for oil all the way to the point when petrol is put in the tank of a customer’s car. Until fairly recently this operation was generally conducted under one brand name and this has always been the case for Shell. In recent years mega-mergers in the sector have clouded the issue somewhat and some of the companies have created, often temporarily, a more multi-branded structure. BP dropped the “Amoco” from their corporate name as soon as they could (although they have kept the brand equity rich “Castrol” name) and Total equally swiftly discarded the “FinaElf” from their title. As well as the obvious external benefits of having a single name there are internal benefits as well. As Olins described it “A single name [“Shell”] and visual identity became significant as a rallying point for staff…employees…could identify with the whole enterprise”.

Given the huge commercial benefits that can accrue from having a brand name (and visual identity system) as familiar as Shell’s you would think that this value would be fully understood throughout the company and that the organisation structure would be designed to maximise brand value for the benefit of all of its diverse businesses. It would also be reasonable to assume that all of the most important actions of the company and its key employees would be at least in part driven by an ambition further to enhance brand equity and to protect corporate reputation. I was soon to discover that in Shell this was not necessarily the case. Looking back fourteen years from today, Shell’s then position looks like a golden era and it is true that few of us at the time thought that the pride that we had in our then strength presaged a calamitous fall.

In 1990 I was called back from Hong Kong to head up a project, “Retail Visual Identity” (RVI), to redesign Shell’s global petrol station network. From the start I assumed that the RVI project, if we were successful, would contribute far more than “just” the enhancement of Shell’s competitive position in the Retail sector. Shell’s petrol stations were the most public face of Shell. We were present in this sector in 120 countries world-wide and we had more than 45,000 outlets. We were not just the biggest petrol retailer but the biggest branded retailer in any sector (McDonald’s, at the time, had around 15,000 restaurants). Extensive consumer research had shown that the Shell brand had extraordinary strength and that we had an enviable reputational advantage - but it also indicated that some consumers felt our visual identity was beginning to look a bit tired.

By the autumn of 1990 a number of things about RVI were beginning to become clear. The average cost of re-imaging a petrol station was assessed at around $30,000 which meant that the overall cost of the project was well over a billion dollars. It was also clear to the project team from looking at what Shell’s competitors, particularly BP, had achieved that it would be necessary to complete the exercise as quickly as possible – within three years at the outside. The senior Shell executive responsible for seeking approval for this funding was David Varney[1] – the head of the global marketing Division within which I worked. Varney’s presentation to Shell’s Committee of Managing Directors (CMD) was masterly. Eschewing any return on investment calculations (which would have been largely fictitious anyway) he told the Managing Directors that Shell had to re-image its networks because we lagged behind the competition and that, whilst we would do all we could to minimise costs, there was really no alternative but to proceed. It was a typically robust message from Varney and one that a perhaps slightly bewildered CMD accepted.

The sense of elation that we had that we were rolling was soon to be tempered however. It became rapidly clear that the project was seen only as a marketing project. In other words that RVI was narrowly seen as being about the repositioning of the “brand” in Retail - it was not seen as being part of a more complete plan to enhance Shell’s corporate “reputation”. This seemed to many of us a non sequitur – Wally Olins had shown that for monolithic brands there could be no distinction made between the brand in the market place and the overall reputation of the company. By ensuring that Shell’s 45,000 petrol stations gave a far higher level of customer satisfaction we thought that we would make a major contribution to the enhancement of the overall reputation of the Group.

For Shell’s top management the RVI project was just about the re-imaging of our petrol station networks. The crucial consequence of this doubtful logic was that Shell companies (“Operating Companies”) around the world would be expected not only to fund the implementation of RVI themselves but to do so narrowly out of their Retail budget and earnings. So RVI, rather than being a project with momentum and with a strong central commitment and funding, became vulnerable to the vicissitudes of local company priorities. The imperative to effect the changes within three years disappeared and for many years most parts of the world had networks combining sparkling new RVI sites with outdated and in many case poorly maintained sites for which the re-imaging funds could not be found. In effect around the world there were two Shells – and at the top in the Group there was little or no interest in addressing this problem.

That Shell operates at times in a sort of parallel universe where the normal logic of businesses in the real world is suspended, and singularly Shell behaviour patterns emerge, became increasingly apparent to me at this time. The long drawn out and inconsistent implementation of RVI showed that, whilst any branded retailer (including those in the petroleum sector like BP) would see that there was an urgent need to implement a new brand identity as quickly as possible in Shell there was no such imperative. Similarly whilst any global brand would want to drive implementation of a repositioning exercise centrally, Shell was happy to leave the exercise to local decision making. And finally whilst a brand repositioning exercise of this type is a vital and significant strategic marketing project ,and a reputation building corporate identity project as well, demanding central funding and a firm bias for action Shell was prepared to let it drift and was unwilling to allocate any central funds. A strategic project, driven by the sort of “must do” logic so eloquently articulated by David Varney, cannot flourish in a world where ever more demanding performance indictors are put in place and which requires ever shorter returns from any investment.

Through most of its history Shell had been an immensely self-confident brand. This confidence had huge benefits in that, for example, when a new marketing opportunity occurred (e.g. a market entry) there was an expectation that by transferring experience from similar existing operations a successful presence could be built. And the self-confidence also led to a patient acceptance that to establish a profitable business in a new market would take time. In the 1990s this self-confidence began to be eroded and there was a growing reluctance to take risks. This corporate nervousness also led to a period of introspection and to the almost daily search for external gurus to advise on problems - real or imaginary. A bias for the over quantification of every problem crept into the culture leading to over elaborate studies, delayed decisions and missed opportunities.

Those of us working in brand management viewed these trends with alarm. We knew the truth of Lord Leverhulme’s remark “I know half my advertising is wasted, but I don’t know which half!" And we also knew that strong brands stay strong because there is an understanding that they need continuous investment. Whilst any brand manager will strive not to waste any of his communications budget he also knows that advertising is more an art than a science. With the obsessive bias for quantification in Shell, and the ever shorter term measurement periods, advertising budgets were vulnerable and duly attacked. We also viewed with concern the absolute failure of the organisation to recognise that brand investment (RVI, advertising etc.) enhanced Shell’s corporate reputation if it was done well. Historically the tag line “You can be sure of Shell”, whilst mainly associated with products and services, also created a reference frame within which all of Shell’s diverse business was carried out. In this period of the mid 1990s there was a complete unwillingness to recognise this reality – above all to see that brand and reputation are two sides of the same coin – even that they are synonymous. There was no organisational recognition that the management of reputation, and the soon to become a necessity to develop a Corporate Social Responsibility (CSR) policy, were inherent parts of brand management.

It was in 1995 that two events brought the whole reputation management issue into sharp relief in Shell. The extensive protests against Shell’s plans to dump a redundant Oil Platform “Brent Spar” in the North Atlantic caused much heart-searching and eventually led to the abandonment of the plans. In Nigeria around the same time that the political activist Ken Saro-Wiwa implicated Shell during his “treason” trial by saying “…the ecological war that [Shell] has waged … will be called to question sooner than later and the …crime of the Company's dirty wars against the Ogoni people will also be punished.” When Saro-Wiwa was executed on trumped-up charges some of the world-wide condemnation of the act was aimed at Shell who by association was implicated.

In 1995/6 Shell suddenly burst into a frenzy of activity designed to restore the perceived damage to its reputation resulting from Brent Spar and Nigeria. A raft of processes and initiatives was launched which was designed to find out the views of key “stakeholders” about Shell - and programmes were subsequently initiated to communicate a CSR message. This activity was undertaken by a team which was organisationally completely separate from those responsible for the management of the Shell brand. There was no integration of the CSR (etc.) work with Marketing and no understanding that this was necessary. Crucially the CSR team were almost all professional “buy-ins”. They were skilled practitioners in subjects like Sustainable Development and CSR – but few of them had any practical experience of the Energy industry and they were almost all new to Shell. They worked in London, remote from Shell’s local operations around the world, and few of them made any visits to local Shell companies. There was a complete disconnect between the management of the brand and the management of reputation. Throughout the Group quite different people were involved in the marketing communications activity, which promoted brands, and the new corporate identity initiatives, which were designed to enhance Shell’s reputation. The marketing communications budgets were severely cut whilst the comparatively well-funded “corporate” advertising and other “reputation” initiatives grew in significance - but with few links being made to the brand communications work.

Running in parallel with these changes in respect of the presentation of the external face of Shell, internally there was an emphasis throughout the organisation on behavioural change. The argot of “Old Shell” and “New Shell” was commonly used to describe what was supposed to be a step change in behaviour. Some of this was a change in process and in particular in decision making (greater centralisation was the main consequence) but most of the changes centred on a drive for greater efficiencies and lower costs. The old Shell structure was torn apart and the new “businesses” that were created cut across the old lines of geographic control and the country and its “operating company” became wholly subordinate to these vertically structured global businesses. The cost control imperative led not only to the decimation of brand communications budgets but also to swingeing reductions in levels of marketing staff in Operating Companies and to a greater regionalisation or centralisation of decision making. We were getting further and further away from our customers and no longer “thinking globally and acting locally” - the corporate behaviour that had historically created Shell’s global brand strength.

Whilst all of these developments were damaging to the long term health of the Shell brand, and the failure to institute a proper dialogue between marketers and those managing the reputation enhancement initiatives was counter-productive, what none of us could have imagined was that the much hyped “New Shell” would be remembered not so much for these errors but for catastrophic failures of behaviour. In early 2004 it was revealed not only that Shell had been systematically overstating its oil reserves for some time but that senior executives recognised that they had been mendacious. Heads rolled – including that of the Group chairman Sir Phil Watts and the resultant crisis was far, far greater than anything that had occurred in the 1990s.

If there had been a more confident and integrated approach to brand management (in keeping with the reality that Shell is a “Monolithic” brand corporation) and if there had been a better funded and consistent brand management exercise over the years could this disaster have been avoided? If those working on the corporate reputation initiatives had been more steeped in Shell, and if they had better understood where the business stress points were, could they have much earlier seen a potential problem? Certainly if there had been a real understanding and commitment that behaviour throughout the organisation had to match the rhetoric of the corporate CSR communications then the charge of hypocrisy would have been avoided. The crucial mistake was the lack of co-ordination of all the many aspects of the management of Shell’s public face and the lack of proper checks and balances to pick up the warning signs of dysfunctional behaviour. As many as a hundred people (perhaps more) must have known that Shell was fabricating facts about its reserves. Did none of them see the potential brand damage that this would cause? A truly brand aware company would have identified the risks much earlier.

Finally many global corporations have a director at board level who takes charge of all aspects of that corporation’s brand and reputation. Shell had no such position. By contrast John Browne CEO of BP was advised by one of his communications agencies to appoint a Board level individual as brand and reputation guardian. “Who should it be” he asked. “You” was the reply. Browne accepted this recommendation and BP’s brand has never looked back. BP’s reputation, their share price and the morale of their staff has never been higher. The lesson for Shell is clear – but is it too late? We shall see.

[1] Varney spent almost 30 years at Shell before moving in 1997 to become chief executive of energy company BG. Varney joined MMO2 in 2001 to oversee its demerger from BT, and his other roles include chairman of Business in the Community since January 2002 and council member of the Confederation of British Industry.